This problem requires that students compute the gain or loss from an investment in two derivative securities, one of which trades on the Chicago Mercantile Exchange (CME), and one of which trades on the Chicago Board of Trade (CBOT). The problem is simple, but students learn about fixed-income derivative pricing and about contract specifications. In particular, they learn that a quote of 98.26 for a Eurodollar futures contract does not mean the contract price is $98.26; they learn that the value is 98.26 multiplied by $2,500, or slightly less than $250,000.

They also learn that a quote of 109’112 for a Treasury note futures contract does not mean the contract price is $109.112. Instead, the 112 is a quote in thirty-seconds; specifically 11.25 thirty seconds, so in decimals, the quote is $109.351563. For Treasury futures contracts, the quote is multiplied by $2,000, so the value is slightly more than $200,000.

The purpose of this problem set is to illustrate that it is necessary to learn numerous details to price complex securities.